SUDDEN SPIKES IN GLOBAL RISK

Written by Bacchetta & van Wincoop

Presented by Seth LeonardDiscussed by João Cunha

Summary

Risk Panic

Disconnect from Macro Fundamentals

Two country OLG static model with closed-form analytical solution

Self-fulfilling

Summary

Very tractable

Multiple Equilibria

Contribution to the Risk Panics literature

Extensions

OLG structure

Constant interest rate on bonds

Booms\Bubble

Triggers of (Global) Risk Panics

Alternative Arguments

Credit Crunch

Reduction of Leveraged Positions

Losses in the Financial Markets

Expectations